The top concern of industry executives is uncertainty about oil and natural gas prices this year, according to a survey released by business advisor Grant Thornton LLP Tuesday.

“The findings show an industry that is generally optimistic and strong, but somewhat apprehensive about projecting increases in capital spending and drilling activities when the prices of natural gas and oil remain uncertain for the most part,” said Reed Wood, partner-in-charge of Grant Thornton’s energy practice in Houston.

Tellingly, only 10% of the energy companies surveyed (both public and private) expect natural gas prices to be high enough to support an increase in U.S. drilling this year, the survey said. Forty-one percent of those surveyed said the price of natural gas would have to be $8.43/Mcf in order to justify an increase in domestic drilling activity of more than 20% this year, while more than half indicated gas production would be curtailed if prices were less than $5/Mcf this year, the Houston-based company reported.

The survey revealed that only 65% of the participating companies anticipate increases in domestic capital spending in the current year, compared to 89% last year. And fewer companies ( 79%) indicated they will need more capital in the next five years, down from 89% last year. In addition, more than half of the respondents said they plan to focus on both natural gas and crude oil activities this year, not primarily natural gas as in 2006.

Mirroring last year’s results, the surveyed companies said they still believe the Gulf of Mexico holds the greatest potential for oil and gas discoveries, followed by the Rocky Mountains and Alaska.

Many of the respondents said they plan to add jobs this year, but executives expect to face continued challenges in finding and keeping qualified industry professionals, especially geologists and engineers, even when offering top salaries, the survey showed. The survey companies said they anticipate a rise in merger and acquisitions and restructurings in the months ahead.

Sixty-one percent said they believe there will be stricter legislation enacted in the future to further protect the environment, according to the survey. Consequently, almost half of the surveyed companies said they expect to spend more on environmental remediation or studies compared to current levels.

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